Conspicuous Production

Holiday parties are a time for conspicuous production: "Would you like some bread with sun-dried tomatoes - I just baked it this afternoon? The tomatoes? Oh, they're nothing - I had stacks of them in my garden this year, so I dried them in the solar-powered food drier that I built last summer."

It wasn't always this way. In grade 4, my best friend Suzanne always got Wagon Wheels in her lunch box. How I envied her. I just had boring home made cookies. Back then, prepared foods were relatively expensive, and their consumption signaled social status.

Fast forward a generation. Many middle-class families rely on two incomes to pay the mortgage, and time has become the scarce resource. Sure, I could afford to buy Wagon Wheels for my kids. I don't, because granola bars are (slightly) healthier. It wouldn't matter anyways. The new status good is a home made cookie - when time is precious, anything home made is a luxury.

It's easy enough to write down a formal economic model of conspicuous household production - just choose a model of conspicuous consumption, and change the budget constraint so that the price of a good includes the time cost as well as the money cost, and the endowment is of time not of income.

But what can one learn by doing so?

Thorstein Veblen, who coined the phrase "conspicuous consumption", believed excessive consumption was wasteful. Anti-materialism is a recurrent theme in the modern economics literature too. For example, in Eaton and Eswaran's theory, Veblen goods are like peacock feathers. Sure a peacock gets some benefit from having beautiful feathers - it signals that he is a healthy adult, hence increases his chance of getting lucky with a peahen. But if he could signal his reproductive fitness with just one feather, rather than a tailful, he could save a lot of effort.

Growing peacock feathers is like an arms race -- every bird tries to have better feathers than the next, but in the end none of them are better off as a result. Indeed, Eaton and Eswaran argue that conspicuous consumption can erode all of the benefits from productivity gains, explaining why growth in per capita GDP doesn't appear to make people happier. If one person's productivity increases, he tries to increase his status by conspicuously consuming more. But one person's relative status gain is another person's loss. To recoup their social position, they too spend more on conspicuous consumption. In the end, no one is any better off.

Indeed, sociological analyses have argued that 20th century improvements in household technology - irons, washing machines, vacuum cleaners, etc - were accompanied by increases in standards of household work, so the total amount of time spent on household work stayed the same. For example, Ruth Cowan, describing the 1920s, writes:

The average housewife had fewer children than her mother had had, but she was expected to do things for her children that her mother would never have dreamed of doing: to prepare their special infant formulas, sterilize their bottles, weigh them every day, see to it that they ate nutritionally balanced meals, keep them isolated and confined when they had even the slightest illness, consult with their teachers frequently, and chauffeur them to dancing lessons, music lessons, and evening parties.

Ruth Cowan's words will have resonance for any parent who has experienced the intensely competitive world of elementary school dioramas and Halloween costumes, to say nothing of figure skating or competitive hockey.

Yet - and perhaps this is just me trying to justify the hours I spent baking this holiday - home production isn't just peacock feathers. Home-made bread with home-grown, home-dried tomatoes really is delicious.

Frank's theory of positional goods captures the idea that conspicuously consumed items can have some intrinsic value. In his model, there are two goods. A person's consumption of good x (a car, a house, say) can be observed by others; consumption of good y is unobservable. Because people get utility from the relative size of their house/car/etc, they allocate more resources to good x than they otherwise would do. Yet this collective keeping up with the Jones, just as in the Eaton and Eswaran model, makes people worse off.

Frank argues that, in general, positional concerns result in to excessive consumption, as I've noted elsewhere. Yet, interestingly, he suggests that when it comes to child-rearing, positional concerns might be a good thing - or, at least, that they are likely to be favoured by natural selection:

Suppose we take as a working hypothesis that a parent's utility function is programmed with an instruction something like, "Feel bad whenever your children are less well provided for than are the children of your peers."

Or, for modern parents, "feel bad whenever your children receive fewer/lower quality music lessons than do the children of your peers."

This is a valuable insight: when it comes to care, conspicuous production is not necessarily a bad thing.

Frank's model also suggests that the observability of consumption (or production) is crucial. That explains why the lavishly home-produced treats come out at parties and celebrations - that person making home-made bread today may be ordering in pizza for a private, unobserved family dinner tomorrow, when no social status is at stake. For readers of Canadian writers such as L.M. Montgomery, however, that should come as no surprise - women being judged by the time by which their laundry is hung out to dry (earlier=better) is a familiar theme in these novels.

However, although the conspicuous consumption models are a useful starting place for thinking about conspicuous production, there are elements of conspicuous production that aren't captured by those models.

One is the emotional aspect. This holiday, when someone told me "your cheese straws taste just like the ones my mother used to make," I glowed inside. And I still feel shame about the time when hours of parental assistance produced a diorama so bad that the only nice thing my son's teacher could say about it was "I can see that you made it all by yourself." A Cartier watch signals ability indirectly - I am skilled enough to earn enough to afford this. Home production signals ability much more directly - hence failing to produce adequately hurts.

Conspicuous production doesn't completely explain why people produce goods themselves. Home-made is still, sometimes, cheaper. As Nick Rowe has argued, a job well done can be a source of satisfaction. And sometimes there is simply no alternative. For example, when I lived in England, canned pumpkin was unobtainable, so the only way to make pumpkin pie was really from scratch, that is, starting with pumpkins (or, strictly speaking, squash, as pie pumpkins were unobtainable also).

Comments

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"Frank's model also suggests that the observability of consumption (or production) is crucial."

This is epidemic in MBA programs. I've known a number of students that live in TINY apartments but all have brand new BMWs. I once asked a student of mine why that was, and he said "because EVERYONE sees your car. Only your close friends know where you live" (while looking at me like I was stupid). He went on to say that this was very common in the city in China where he was from - that you'd have 4 guys living in a tiny apartment, but they'd all have less than 2 year old luxury cars.

At the time I was living in a nice house but driving a beat up 6-year old Hyundai Sonata, so I guess I missed the memo.

When I was in Grade 4, I also envied my classmate's steady lunchtime diet of, in this case, Hostess Cup Cakes (despite the fact that my father never tired of describing them as "road tar and shaving cream"). However, I learned my first lesson in economics when I discovered that I could trade my mother's homemade peanut butter cookies at an exchange rate of 1 cookie/2 cupcakes. Ever since, I've been skeptical about the omnipotence of corporate marketing.

Nick, maybe this is a gender thing - but why does "driving a 1994 MX6" signal that you know how to maintain it? Couldn't you just have a good mechanic?
Fran, this post kept me puzzling all through yoga class, and I suspect will for a bit longer. The China example, though, may have helped: i was wondering about house cleaning. If you host a party, are guests more likely to be impressed by the homemade food or the clean and tidy house? Both are presumably time intensive.

Linda: Yes, as K says, it's a signalling equilibrium. If I wanted to signal merely that I had money, I would buy a BMW. Or, light my roll-ups with $20 bills. But yes, it is a gender thing too. My repeated attempts to get either of my daughters interested in auto maintenance have failed miserably. And it's getting harder and harder for guys to find a "guy" car. The "chick car" label nearly killed the new Mini, plus the Mazda MX5.

Halfkiwi: I was thinking of Rebel Sell too. And that maybe the ultimate status signal is to buy no positional goods whatsoever. Just to signal that your status is so high, you don't need to signal it.

Linda, I'm thinking that perhaps my reply to your comment on cleanliness v. baking was biased by the fact that I enjoy baking way more than cleaning. But a clean house signals all sorts of things - organization, order, thoroughness...

Nice post. Signalling is one part, intrinsic enjoyment of mastery another, but a third is social license - some things are produced and consumed as badges of membership. Farmers in 18th century Poland who wore swords were members of the szlachta (the gentry), even though the sword was the sole sign of this. Clothes do a lot of this. Production can be involved as well as consumption - skilled craftspeople resent others doing what they are socially licensed to do. Arjun Appadurai (Social Life of Things) explores this.

Interesting point. And it's not just skilled craftspeople. A relative who lived in Egypt for a while had a long-term dispute with his driver over who would push the shopping cart and load the groceries into the car - the driver resented my relative's insistence on doing things himself (eventually the driver won the battle). I'd thought of a sort of "taking a job away from the honest working man" kind of thing, but perhaps there's more to it than I'd thought.

I think this gets at the ways in which people use household production to construct who they are - e.g. female politicians touting their cooking abilities, from Golda Meir's chicken soup to Sarah Palin's moose chili (can't think of any male politicians who demonstrate their ability to fix a car however).

Frances: It's not fixing a car, but Reagan and Bush's brush clearing helped create the image of independent, rural, tough American man.

For evidence, look no further than the right-wing juxtaposition of Reagan/Bush and Obama's household production.
http://oregoncatalyst.com/2293-Picture-contrasts-Reagan,-Bush-and-Obama.html

The brush clearing may have been chosen mostly to create an electable candidate rather than a personal identity. Still, the pursuit of a certain self-image might help explain the do-it-yourself mentality even when it’s cheaper and easier to hire a landscaper and lease a Honda.

Fraser, interesting. I was wondering if this kind of identity-building bush-clearing conspicuous production is different from conspicuous consumption. And then I thought about my recent trip to the electronics store to buy a new laptop (my old and beloved ibook is dying).

I was planning to buy something that ran Windows. A $700 Gateway would do everything that I need a computer to do. I had it in my hands. I was going to buy it. But I just couldn't bring myself to do it. It was so ugly. And clunky. And generic. And heavy.

Yes, I will go work to wearing jeans, carrying a scruffy backpack one of my kids has rejected. Sometimes I shop at Value Village. But to be seen in public with a cheap laptop? The shame would be unbearable. *It's just not me.*

Couldn't do it. Now the Macbook Air - that's a pretty machine.

So, on consideration, I think conspicuous production and conspicuous consumption are, in this way, much the same kind of thing.

Interesting piece, and useful to reverse the usual terminology from conspicuous consumption to production; that said, I think probably easier and more useful to model/consider as consumption of time and consumption of certain types of goods not readily available commercially.

Two thoughts about conspicuous consumption:
1) Always useful to emphasize and underline that the point of conspicuous consumption is mostly about signalling. The literature as noted generally assumes that the signalling is evolutionary in nature, i.e. about sexual selection. But I work abroad, and like the Chinese (?) MBA student, in my industry consumption is very much about signalling to peers/management/competitors/potential employers one's 'fitness.' Anecdotally, I was advised by a friend to spend this year's bonus on a fancy car to impress my manager; I still think this is stupid, because a) the bonus was not that big, so I would net-net be behind, and b) I walk to work so it would be pretty ineffective as a signal - but I have no choice but to register his point.
2) The part that I truly do not understand is the cultural component of this, and whether there are multiple equilibria that arise as a result. In my grandparents' generation/culture (southwestern ontario farming), conspicuous giving to e.g. local church and poor was a significant factor (and I still hear neighbourhood stories about this). It seems to me that the expensive car norm is not - but I don't know.

I need a better framework to understand what selects the signalling component, and the effects.

And what happens if the fashion is conspicuous investment?

As a side note, my suspicion is that there are a) pretty strong links between some forms of conspicuous consumption and bubbles (if the consumption is targetted at fixed assets), and b) a very strong investment/savings case to be made for contrarian strategies if you can figure out where conspicuous consumption/production/investment is likely to be counterproductive in the long term.